Is there a chink in India's industrial armoury? RBI MPC's Nagesh Kumar explains why a 25-bps rate cut is needed
Nagesh Kumar, the newest member of the Reserve Bank of India’s Monetary Policy Committee (MPC), has pointed to demand deficits in both domestic and international markets as a primary reason for the lack of momentum in private investment.
In the minutes of RBI MPC's October meeting, Kumar has highlighted that despite companies maintaining healthy balance sheets and the government’s various reforms and incentives, private sector investment is yet to pick up.
Kumar, who was the sole MPC member advocating for a rate cut in the latest meeting, believes that weak demand is holding back the investment recovery.
At the same time, India’s macroeconomic fundamentals remain strong. The country is currently the fastest-growing large economy globally, with relatively low inflation, exchange rate stability, and sizable foreign exchange reserves. This success can be attributed to effective monetary policy from the RBI and prudent fiscal management by the Finance Ministry, he opined.
Moreover, disruptions caused by the pandemic have led to global companies restructuring their supply chains under the “China+1” strategy. This presents an opportunity for India to attract foreign investments, as evidenced by companies like Apple and Foxconn expanding production in the country. However, India will need to enhance its investment climate, improve logistics, maintain a stable macroeconomic environment, and reduce the overall cost of doing business to fully capitalize on this trend.
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